Financial Markets and Institutions (2-downloads)

Probabilities

Profit =

$10,000

Profit =

$50,000

Lazy

60%

40%

Hard worker

20%

80%

10. “The more collateral there is backing a loan, the less

the lender has to worry about adverse selection.”

Is this statement true, false, or uncertain? Explain

your answer.

11. How does the free-rider problem aggravate adverse

selection and moral hazard problems in financial

markets?

12. Explain how the separation of ownership and control in

American corporations might lead to poor management.

13. Why can the provision of several types of financial ser-

vices by one firm lead to a lower cost of information

production?

14. How does the provision of several types of financial

services by one firm lead to conflicts of interest?